ECB leaders think stimulus needs time to work, open to more

FRANKFURT – Top officials at the European Central Bank remain open to providing new stimulus to raise inflation in the 19 countries that use the euro as their currency — but for now are emphasizing carrying out measures they have already agreed on.

That’s according to a written account released Thursday of the Sept. 8 meeting of the bank’s 25-member governing council.

The council members stressed their commitment to continue at least through March 2017 with the stimulus program under which the EBC is buying 80 billion euros ($90 billion) in bonds every month with newly created money. The bank is also extending ultra-cheap loans to banks, in hopes the cheap money will find its way into the economy in the form of more credit to companies and consumers.

The stimulus efforts aim to raise inflation from an annual 0.4 per cent toward the bank’s goal of just under 2 per cent, considered more in line with a healthy economy.

The measures, along with record low benchmark interest rates, “had not yet filtered through to final variables such as growth and inflation,” according to the account.

Bank officials during the discussion chaired by President Mario Draghi decided that they needed to make “a strong call to European policymakers” to support the ECB’s measures “with adequate fiscal policies and structural reforms to achieve strong, sustainable and balanced growth.”

At his post-meeting news conference on Sept. 8, Draghi urged politicians to play a stronger role in promoting growth by making their economies more business-friendly by cutting back on red tape and excessive worker protections that discourage hiring. He has also suggested they could spend more on infrastructure and other forms of public investment if they can do that without excessive deficits.

Draghi has repeatedly made similar calls over the past several years but governments have been slow to respond, instead focusing on shrinking deficits and shying away from tackling politically difficult reforms. Germany, the biggest of the eurozone countries, has instead run a small budget surplus and rejected the idea of increasing borrowing to invest more.

The ECB is the top monetary authority for the shared currency. Its governing council is made up of the 19 national central bank heads, plus a six-member executive council appointed by European governments.

Draghi made it clear at the post-meeting news conference in September that the council did not discuss extending the bond-buying stimulus program. But he did make it clear that the bank was looking at ways to make sure the program could continue and get around any possible shortage of bonds to purchase; current limits on the amounts and kinds of securities the bank can purchase have led to concerns it might eventually run out of securities to purchase.

A number of analysts expect the bank to eventually announce an extension beyond the current earliest end date. The bank has said that in any case it will continue the purchases until inflation turns convincingly upward.

And that hasn’t happened yet; bank officials expressed worry in the written account that “inflation was still not showing convincing signs of a sustained pickup.”